Sierra Club charges World Bank with Environmental Violations

From People's Weekly World, 11 February, 1995

World Bank Responds to Sierra Club; Sierra Club Responds to World Bank

Special to the World

WASHINGTON, D.C. -- Citing recent reports which reveal the World
Bank's attempts to conceal investigation results of a proposed
venture in Nepal, the Sierra Club has called for the colossal
Arun Dam project to be canceled, and for smaller, less
environmentally destructive projects to be considered.

The Sierra Club is supporting Nepalese environmentalists who
believe that the Bank is pressuring their government to sign off
on the $764 million project in an attempt to circumvent the
World Bank's Inspection Panel findings and to preempt a
comprehensive investigation.

The World Bank, Asian Development Bank and several bilateral aid
agencies are proposing to finance the million-dollar project,
costing more than Nepal's entire annual budget, in an isolated,
biologically-rich and ethnically diverse mountain valley near
the base of Mt. Everest.

"This dam represents precisely the kind of foreign aid rat hole
that has caused some members of the new Congressional leadership
to support sharp reductions in U.S. contributions to the World
Bank," said Stephen Mills of Sierra Club's International
Program. "One would think that after years of local and worldwide
opposition to such environmentally destructive projects that the
Bank would have learned a few things."

Nepalese citizen organizations have proposed a more sustainable
approach to hydropower development, based on local knowledge and
indigenous capacity. This alternative approach is based on
decentralized, smaller-scale hydropower development, and
emphasizes public participation and practical projects that take
advantage of local knowledge, skills, materials, and equipment.
This approach would result in much greater social and economic
benefits for the Nepalese, while providing sufficient
electricity for the country, starting with those in rural areas
who need it most.

On Dec. 20 World Bank management issued an internal update to
staff which stated that the Bank's internal inspection panel
"does not recommend that further work be done on exploring
alternatives." The memorandum directly contradicts a Dec. 16
inspection panel report which found policy violations in the
Bank's alternative project evaluation.

The panel memorandum clearly states that the World Bank has not
demonstrated "that equivalent levels of effort were devoted to
an alternative economic analysis" and that there was an "absence
of a close examination of alternatives."

Mills said, "For Bank management to come into compliance with its
own policies, a full investigation of viable alternatives must
be a part of the project analysis."

The World Bank has a long history of excluding indigenous people,
non-governmental organizations, local experts and government
officials from its decision-making process. In this case, the
Nepalese government, which is still prepared to consider
alternative energy projects, has repeatedly asked the Bank for
more time to review the project proposal. The Bank is unyielding
and is pressuring the Nepalese government to immediately
indicate whether it wants to proceed.

Last year in an effort to further reform the lending practices of
the Bank, Rep. Barney Frank (D-Mass.) former chair of the House
subcommittee with jurisdiction over development banks, insisted
on an exchange. In return for U.S. funding of the World Bank's
International Development Assistance fund (IDA), the Committee
required the Bank to increase its "transparency" or openness to
public review and to create a new independent inspection panel
to review controversial projects.

"The World Bank is attempting to subvert the work of its own
panel. A unanimous Bank board vote is required for an inspection
to even occur," said Larry Williams, director of Sierra Club's
International Program. "These guys aren't even willing to play
by their own rules when the risk is they may lose one of their
pet projects" he continued.

"This represents the antithesis of sustainable development: a
mega-project in a small country for the benefit of a small
urbanized elite of industry, government officials and foreign
contractors," said Mills. "In Nepal, the rural taxpayers and the
environment will bear the burden."

Approximately 450,000 people from 10 ethnic groups would be
adversely affected if the project is funded. The Arun III
hydroelectric project will also directly affect the area's
forests and wildlife because the forests surrounding the site
would be cleared. A Nepalese non-governmental agency, the King
Mahendra Trust, has said that total deforestation is likely to
occur in the Arun basin in less than 15 years because new roads
would make access to the forest easier. And the World Bank
itself recognizes the dam will block the movement of migratory
fish, although no studies have been done regarding those impacts
and the economic and social implications.

Below you will find Sierra Club's response to our article which appeared on
Econet last week charging that the World Bank has tried to manipulate the
Inspection Panel's review of the proposed Arun Dan development scheme in
Nepal. Following Mr. Mitchell's memo you will find the Sierra Club's reply.
We think you will agree that Mr. Mitchell makes a very fine case for us as to
why the World Bank needs a major management overhaul.

Larry Williams
Director, International Program
Sierra Club

Dear Mr. Williams,

Your latest message on the Internet (White House Lagging on World Bank Review)
has many incorrect facts about the Bank and the Arun project. The spread of
material like that contained in this message does little to further productive
debate about the project, the Bank, or development in Nepal.

While we are more than willing to engage in a debate about development and the
individual projects the Bank supports, this becomes difficult when we see
wrong information - like that contained in your message - being spread. We
have always believed that the Sierra Club as a responsible organization, wants
to enter into a rational debate about development and environmental issues.
Hence our disappointment when we see your organization putting incorrect or
misleading information about Bank projects into the public arena.

It is appalling that you accuse the Bank of "pressuring" the Government of
Nepal to sign off quickly on the Arun project "in order to circumvent the
Inspection Panel". This is clearly not correct and disappointing coming from
the Sierra Club.

The Bank has, in fact, gone out of its way to encourage the new government to
review the project and to ensure that any questions it has about the project
are answered. The Bank has briefed the new government in Nepal, discussed the
project in Washington with the Minister concerned, and is now awaiting the
Government's decision on whether or not it wants to proceed. The Government of
Nepal itself set the timetable for an answer by the end of February.

Your statements about the Inspection Panel are also inaccurate. The Panel HAS
NOT found the Bank in violation of its own policies. Indeed the purpose of the
inspection which the Board of Directors authorized on February 6th is to put
the Panel in a position to make definite findings.The fact that the Bank's
Executive Directors want to have an independent view on the matter is a sign
of the Bank's strength in its project design and approval process, not of
weakness. They have not jumped to conclusions about the final outcome of the
inspection - and neither should the Sierra Club.

In accordance with the resolution establishing the Panel all key documents
relating to this matter have now been made public and are in the Bank's Public
Information Centre.

Your statements about the project are also polemical. To assert that the
project will cost "more than Nepal's entire budget" confuses the total cost of
the project, which will be spread over eight years, with the cost of a budget
for a single year. If the aim is to encourage rational debate this sort of
polemic does not help.

The Government of Nepal is expected to provide about USD 145 million or 19% of
the total project costs, again spread over eight years. The other funding is
either concessional (i.e. zero interest loan) or a grant. Most of the loan
funds do not have to be paid for 10 years or until the project comes on
stream. At that point it is projected that revenues from the project will be
about USD 100 million per year while debt servicing will only be about USD 10
million per year.

To exaggerate the cost of the project, while omitting any mention of the
benefits is hardly responsible.

Paul Mitchell
Public Affairs South Asia
World Bank
<PMITCHELL1@worldbank.org>
February 15, 1995

SIERRA CLUB RESPONSE

February 17, 1995

Mr. Paul Mitchell
Public Affairs South Asia
World Bank

Dear Mr. Mitchell,

It is always good to hear from the World Bank and to have the
opportunity to engage in an exchange of information regarding what the real
facts are surrounding the Bank's drive to build the Arun Dam. Your memo
raises three points of contention which I will address in the order they were
raised:

WB claim #1 -- The Bank did not pressure the Government of Nepal to quickly
sign off on the Arun project in order to circumvent the Inspection Panel.

Sierra Club's Response: We believe that your are misinformed on this point.
Our information on the Bank's behavior comes from the NGOs in Nepal who were
told this by officials of the Nepalese Government. They reported that the WB
gave the Government of Nepal a deadline of eight days to make-up their mind on
building the dam. The government protested by saying that they needed more
time to gather more information and objected to being pressured in this way.
The eight day deadline just happened to fall one day prior to a scheduled
Inspection Panel briefing of the WB Board of Executive Directors. Quite a
coincidence, wouldn't you agree? If this was not an attempt to circumvent the
Inspection Panel, then what was it? We put two and two together and make the
call that the project managers were hoping to report to the Executive
Directors prior to their meeting with the Panel that Arun is a done deal. How
would you explain such behavior?

In fact, the pressure on Nepal to accept Arun Dam on a take-it or leave-it
basis continues. Representatives of the Nepalese Government were in
Washington recently to meet with Bank officials. They were told very bluntly
that if they have any dreams to building any of the other dams they had better
accept Arun as a done deal. This is a lot of pressure to put on this new
government that is not in a strong political position at home to take a
principled stand.

WB claim #2 -- The Inspection Panel did not report in its preliminary findings
that the Bank was in violation of its own policies for failing to explore
alternatives to the project:

Well, yes and no, the Inspection Panel's findings were only preliminary. But
the Panel said what we already knew was true. In late December 1994 the Panel
asked the Bank's board of Executive Directors to authorize a "further
investigation" into what it called "apparent violations of [Bank] policy" in
the planning and design of Arun. The Panel also noted that the Bank may face
problems in complying with its policies on "information disclosure, indigenous
people, environmental and social impacts and involuntary resettlement" in
implementing the project.

WB claim #3 -- To assert that the project will cost 'more than Nepal's entire
budget' confuses the total cost of the project.

Sierra Club's Response: It is helpful to our readers to put the $764 million
it will take to build this project in perspective. In terms of the US budget
$764 does not sound like much, but in terms of the budget of Nepal it
represents more than their annual outlay. A staggering investment for this
developing country. You should have been happy we used the $764 million
figure because the real cost of this dam will be more like $1.082 billion!
We should have added another $285 million for the construction interest costs
which Nepal must pay up front during the eight years the dam is being built.

We agree with the Nepalese NGOs that there are better energy investments
available to Nepal which the Bank staff has not been willing to give fair
consideration to. Why? Because they would cost less and they would require
more staff time to develop than this mega-project. Unfortunately, Mr.
Mitchell, some of your managers still believe that success is measured by the
dollars moved. Less costly alternatives are not going to be seriously
considered until that attitude changes. We look forward to the findings of
the Inspection Panel on Arun. Perhaps then, we can continue this dialogue.